MARKETING 2
Services Marketing
MODULE 2
26/08/2024
www.vut.ac.za
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Chapter 12
Managing demand and capacity
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LEARNING OUTCOMES
By the end of this chapter, you should be able to:
•
Interpret the impact of the service product’s perishability on the ability of a service
organisation to match supply with demand.
•
Explain the nature of the concept variable demand for services.
•
Compare different strategies to match demand with supply by shifting demand
patterns.
•
Explain strategies for adjusting capacity to meet variable demand.
•
Compare various strategies to manage situations when capacity and demand
cannot be aligned.
•
Explain queuing and reservation system.
•
Apply your grasp of the theory discussed in this unit by providing appropriate
practical examples to illustrate any principle or concept.
•
Provide a marketing management solution related to any of the above outcomes.
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THE IMPACT OF PERISHABILITY ON THE ABILITY OF A SERVICE
ORGANISATION TO MATCH SUPPLY WITH DEMAND
• The concept of perishability in the context of services refers to the fact
that services cannot be stored for later use or sale.
• Perishability has significant implications for how service organizations
manage the balance between supply and demand.
• Time-Sensitive Consumption:Services must be consumed at the time they
are offered.
• Demand Fluctuations:Many services experience fluctuations in demand
based on factors like time of day, season, or even external events.
• Capacity Management:Service organizations often have a fixed capacity,
To manage perishability, these organizations must carefully plan and
forecast demand to optimize the use of their capacity.
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VARIABLE DEMAND FOR SERVICES
• The concept of variable demand for services refers to the fluctuations in
customer demand for a service over time.
• Demand for services often varies based on time factors, such as time of day, day
of the week, season, or even specific events.
• Because services are produced and consumed simultaneously, the supply of
services is often relatively inelastic in the short term.
• Some fluctuations in demand can be predicted based on historical data, trends,
and external factors (e.g., holidays, weather, and special events). However,
other variations may be less predictable, such as sudden changes in consumer
behavior, economic downturns, or unexpected events that cause spikes or
drops in demand.
• By understanding demand patterns, organizations can implement strategies
such as dynamic pricing, reservation systems, and promotions to balance
demand and maximize revenue.
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STRATEGIES FOR MANAGING VARIABLE DEMAND FOR
SERVICES
• By understanding the patterns and drivers of demand variability, service
organizations can implement effective strategies to balance supply and
demand, optimize revenue, and maintain service quality.
• Strategies to manage variable demand for services include capacity
management, demand management and overbooking.
Capacity Management
Demand Management
Overbooking
Adjusting staff levels, using parttime or on-call employees, or even
automating certain processes
during peak times can help
manage variable demand.
Encouraging customers to use
services during off-peak times
through incentives, promotions, or
differential pricing.
Some service organizations (e.g.,
airlines, hotels) use overbooking
strategies, anticipating that some
customers will cancel or not show
up, thus maximizing capacity
utilization.
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CAPACITY ISSUES
• The extent to which demand can be manipulated is limited.
• An important consideration in optimising a service provider’s revenue stream is the
management of its supply capacity.
• Components to the potential productive capacity:
1) Nature and extent of the location in which the service takes place is
important.
2) Number of staff members employed in the production of a service will
constitute a constraint on the capacity of the service business.
3) Dependant on the use of equipment, and this may place a limitation on a
service provider’s ability to meet unexpected demand.
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MATCHING CAPACITY AND DEMAND
• Once a service organization understands the d think about demand
patterns that it faces and recognizes its capacity constraints, it is in a
position to formulate strategies to match capacity and demand.
Approaches to matching capacity and demand
Smoothing demand
Manipulate the variation in demand in times of
excess capacity and suppressing demand in times of
excess demand.
Increasing capacity to meet demand
Regulate the capacity of the firm as the demand for
its services fluctuates.
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SMOOTHING DEMAND
• When using this approach organizations attempt to move the patronage of
customers from peak times to periods when there is less demand for
services.
• A number of elements of the marketing mix can be used to realize this
objective.
Elements
Description
Product
Change the service offerings to accommodate fluctuations in demand
This change will in turn, allow more customers to be served during this period of peak demand
Promotion
Inform customers about times of peak demand and if they are aware of the potential inconvenience
of long queues and overcrowding, they may prefer to receive the service at another time
Place
Important to be accessible and available to customers not only in respect of their location, but also in
terms of hours of operations.
Price
Most frequently used element to manipulate demand.
Need an understanding of what drives demand.
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INCREASING CAPACITY TO MEET DEMAND
• The focus of this approach is to adapt the supply side of the
organization to fit the patterns of demand rather than smoothing
demand where demand is manipulated to accommodate the service
capacity.
• During peak demand, The organization will attempt to increase its
capacity to accommodate the extra demand and maximise its revenue.
• During periods of slack demand, the organization will attempt to
minimize its capacity so there is no wastage of resources.
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PRIMARY RESOURCE THAT CAN BE MANIPULATED
• Four primary resources that can be manipulated to ensure optimum
revenue for service provider include time people equipment and
facilities.
Resources
Description
Time
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To expand capacity > increase the amount of time for which people, equipment and facilities
are deployed to meet the increased demand.
People
•
•
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Get existing employees to work longer hours
Employ part time workers to assist in meeting peaks in demand
Outsource a function in time of peak demand
Equipment
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Rent equipment on a short-term basis to assist in times of peak demand
Facilities
•
•
Can expand the facilities in times of peak
E.g. more tables, renting additional facilities
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WAITING LINE STRATEGIES
• Waiting all reservation systems are used when demand exceeds supply
and all other efforts to match supply and demand failed.
• This may also be the case went demand is unpredictable and service
capacity is inelastic.
• However, service providers who get it right regard their management of
queuing as a competitive advantage
• Queues are unavoidable, how to deal with this excess demand:
✓Types of queuing options with examples:
a) Single line to multiple servers (Snake) = Woolworths
b) Designated lines to designated servers = Banks
c) One serving stations and one queue, single line, single server,
single stage = University dining halls
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WAITING LINE STRATEGIES
• Queues are unavoidable, how to deal with this excess demand:
o Types of queuing options:
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WAITING LINE STRATEGIES
• In formulating an appropriate queueing strategy, a number of
approaches have been identified.
Approach
Description
Employing operational logic
Consider whether there are any operational issues that can be modified
Formalising a reservation process
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•
•
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To avoid negativity
Opportunity to build early relationships
Must fulfil their promise and reduce negative connotations associated
with waiting
Carefully designed and implemented
Differentiating waiting customers
•
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Practise a form of discrimination between groups of customers
Look at the importance of customers = hospitals
Making waiting tolerable
•
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Prevent customers from getting bored
Use:
o TVs
o Magazines
o Coffee
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